More non-BPO operations favor the Philippines

The business process outsourcing sector will sustain the real estate momentum toward 2016, CBRE Philippines reports

MANILA, Philippines – While business process outsourcing (BPO) will continue to drive the office space sector, non-BPO operations like front office, regional headquarters, and brick and mortar headquarter offices are beginning to locate in the Philippines, citing competitive costs.

Eighty to 90% of the 700,000 square meters (sqm) on stock this year are for BPO operations, but the country is well-positioned to be the site in 2016 for the Association of Southeast Asian Nations (ASEAN) headquarters as the economies of the region integrate next year, said Rick Santos, chairman and chief executive officer of property consultancy firm CBRE Philippines, on Tuesday, September 23.

The bulk of the office stock will come from major developers Ayala Land Inc, Megaworld Corporation, Robinsons Land Corporation, and SM.

Megaworld pioneered in the development of BPO hubs starting with Eastwood City in Libis, Quezon City.

The highly skilled labor pool has likewise piqued the interest of foreign locators in expanding their operations to the country.

According to the 2014 AT Kearney Global Services Location Index, the Philippines ranks 7th among 51 countries as prime BPO location.

“This bright prospect in the BPO sector, along with the strong performance of other real estate sectors, will see the Philippines through and beyond 2016,” Santos said.

Vacancy in tight supply

Supply is tight as shown by vacancy rates as of the second quarter of the year.

Santos said vacancy rates will continue to be in check to about 5% by 2015 as demand continues to grow, even as an additional 500,000 sqm of space come on stream that year.

Makati City, still the most attractive site for global firms, has a vacancy rate of 1.35% where the average lease rate is the highest at P970 ($21.77*) per sqm, per month.

Makati’s lease rates are at $29 per square foot per annum, one of the most competitive among 19 central business districts in the region.

The Philippines’ biggest competitor in the call center/BPO industry, India, charges $31 to $118 per square foot per year, depending on the city.

Hong Kong charges 5 times the Philippines’ rate, at $221 per square foot per year.

Makati is followed by Fort Bonifacio, where the vacancy rate has gone up to 3.78% from 2.23% in the first quarter, and where the lease is at P797.12 ($17.89) per sqm per month.

Ortigas’ vacancy rate went up 0.72% in the first quarter to 8.75% in the second quarter as it has the cheapest rate of P572.87 ($12.87) per sqm per month.

Bullish toward 2016

Other real estate sectors such as retail, hospitality, and industrial are also experiencing bullish growth. For the former, middle-income earners and overseas Filipino workers’ families are seen to fuel growth, with developers and global retailers becoming keener on setting up outlets in the country.

At least 170,000 sqm of new retail space was introduced in the first quarter of the year, and more than 100,000 sqm of new space will be completed before 2014 closes.

The upbeat tourism of the country, with international tourism revenues at P109.8 billion ($2.47 billion) in the first half of 2014, has increased the demand for more hotels and retail establishments in tourist spots and central business districts (CBDs) of the Philippines.

Similarly, the strengthening of the global manufacturing sector, coupled with stable lease rates, are boosting industrial operations in the country, with players looking into areas outside the usual CBDs, such as in Clark and Cebu.

Also, Japanese locators, in particular, are showing interest in expanding their operations in the country, CBRE Philippines reported. – Rappler.com